What the Market Wants Newsletter - Monthly Analysis of the Market Based on Sabrient's Quantitative Filters

Good-Bye and Good Riddance to 2007!

Another down month, another down quarter, and a lackluster year.

In the final month of 2007, there were only two indices that were positive: the Russell 2000 Growth, up 0.56% and the Russell Mid-cap Growth, up 0.18%. The rest were down about 1%, with the worst of the bunch -- mid-cap value -- down 1.4%.

For the quarter, nothing was positive. The Russell 2000 Growth was again the best (down just 1%), while small-cap and mid-cap value were the worst (down an average of 8.5%).

The year as a whole saw some positive numbers but nothing to write home about. The Russell 1000 Growth was up 10.5%, while small-cap and micro-cap value indices were down between 11% and 15%. The best performance of the year for a major index went to Nasdaq, up 9.8%.

All in all, very ugly.

Sectors. Beginning this month, What the Market Wants will put some emphasis on sector performance as well. Performance is approximate for each sector.

For the year C2007, the top sectors were energy (+ 35%), materials (+30%), technology (+16%) and utilities (+15%). It should come as no surprise that the biggest loser was financials, down 20%, and then consumer cyclical -- home of the homebuilders -- down 10%.

For the last quarter, financials continued to bring up the rear, down 12% for the quarter, while the leaders were utilities (+6%), energy (+5%), and materials (+3%).

As we head into 2008, we obviously want to continue to avoid financials. As we said last month, we still believe that sector has some downside left, and we should not be jumping in just yet to look for bargains.

Given this gloomy picture, what does the market want?

After the volatility of last year, the market is now focusing on analysts. Their forecasts of earnings and revenues -- and especially any revision of earnings estimates -- are being scrutinized more closely now than at any time in the past ten years.

Momentum continues to play a big role in what the market wants, for no other reason than, "If it ain’t broke, don’t fix it." Growth and GARP metrics remain important determinants of price movement, as they have all year. Cash flow is still important but not as much so as it was six months ago.

In a market as negative as this one has been over the past several months, we must wait for some sign of positive sentiment before investing too aggressively.

Next update: The firsst week of February.